U.S. & Global Markets U.S. Treasury prices were marginally higher Wednesday, as doureconomic data raised expectations that the European Central Bank willjoin the Federal Reserve and the Bank of Japan in boosting globalliquidity. Twenty-one of 36 economists in a Bloomberg News surveyforecast the European Central Bank will cut its main refinancing rate by 25bps next week (May 2) to 0.50%. Of note, the average yield to maturity ofsecurities in Bank of America Merrill Lynch’s Global Broad MarketSovereign Plus Index fell to an all-time low of 1.3419% on Tuesday. Sumitomo Life became the latest Japanese insurer to say it would focuson U.S., European and Australian debt, while shifting its allocation awayfrom Japanese government bonds. At the end of March, Japaneseretirement funds held only 29% of their assets in Japanese bonds versus31% in March 2012. The U.S. Treasury auctioned $35 bln of 5-year notes to strong demand ata yield of 0.71%, 0.6 bps below the 1:00 pm auction deadline mid-marketquote. The bid-to-cover ratio (which gauges demand by comparing totalbids with the amount of securities offered) was 3.86, compared to anaverage of 2.80 at the past 6 sales. Indirect bidders (an investor class thatincludes foreign central banks) purchased 43.6% versus an average of41.3% for the past 6 sales. Direct bidders (non-primary-dealer investorsthat place their bids directly with the Treasury) bought 14.0% of the notes,compared with an average of 18.3% in the last 6 sales. This week’scoupon note auctions will conclude with $29 bln in 7-year notes onThursday. According to Fitch Ratings, the U.S. high yield par default rate fell to1.6% in March, down from 1.9% at the end of 2012. However, activity hasbeen brisk in April, and Fitch Ratings projects that the rate will move backup to 2.0% in the second quarter. Following Marchs modest two defaultson $574 mln in bonds, April has thus far added seven issuers and $2.8 blnto the years default tally. Eight issuers defaulted on $3.4 bln in the firstthree months of the year. U.S. March durable good orders fell 5.7% m/m, more than marketexpectations for a 3.0% decline, continuing a recent pattern of weaker-than-expected economic data. The Federal Reserve established a target range of zero to 0.25% for theFed Funds rate on December 16, 2008 and expects that a highlyaccommodative stance of monetary policy will remain appropriate for aconsiderable time after the asset purchase program ends and theeconomic recovery strengthens. The Federal Open Market Committee, onMarch 20, 2013, maintained its commitment to keeping the Fed Funds rateKey Rates wholesale bidCANADIAN0.99%1.00%3.00%0.05%0.25%3.25%US$ / CAD 0.9749CAD / US$ 1.0258PrimeFed Funds TargetDOLLARBank of Canada 3M T-BillsOvernight TargetPrimeUST 3M T-BillsUSABenchmark BondsCANADIAN Price Change Yield$ 99.03 $ 0.00 1.02%$100.12 $ 0.00 0.94%$100.27 $ (0.01) 1.19%$ 97.99 $ 0.05 1.72%$133.18 $ 0.01 2.38%$ 99.80 $ 0.01 0.23%$100.30 $ 0.06 0.69%$102.72 $ 0.09 1.70%$104.69 $ 0.29 2.89%CAN 1 1/4 03/01/18CAN 1 1/2 06/01/23CAN 4 06/01/41T 3 1/8 02/15/43CTB 0 04/10/14CAN 1 05/01/15T 0 3/4 03/31/18T 0 1/8 04/30/15USAT 2 02/15/23TD Economics Forecast (Apr. 4/13)CANADIAN Q2 Q3 Q4 Q4(%) 2013 2013 2013 2014Overnight 1.00 1.00 1.00 1.502-year 1.10 1.15 1.20 1.705-year 1.45 1.55 1.60 2.0510-year 2.00 2.10 2.20 2.7030-year 2.55 2.70 2.75 3.25US$ per C$ 0.94 0.98 0.98 1.03USA (%)Fed Funds 0.25 0.25 0.25 0.2510-year 2.10 2.20 2.30 3.0030-year 3.15 3.40 3.50 4.10U.S. Treasury Yield Curve0.01.02.03.04.00 10 20 30TermYieldToday1 Month Ago1 Year AgoAll charts and tables are sourced fromBloomberg Finance L.P.This newsletter is for distribution to Canadianclients only. Please see the final page of thisreport for important disclosures.Benchmark U.S. Yield HistoryApril 24, 2013
Market Buzz April 24, 2013Page 2at “exceptionally low” levels and thresholds for that policy to be appropriate“at least as long as the unemployment rate remains above 6-1/2percent, inflation between one and two years ahead is projected to beno more than a half percentage point above the Committee’s 2percent longer-run goal, and longer-term inflation expectationscontinue to be well anchored.” The Committee said “Informationreceived since the Federal Open Market Committee met in Januarysuggests a return to moderate economic growth following a pause late lastyear. Labor market conditions have shown signs of improvement in recentmonths but the unemployment rate remains elevated. Householdspending and business fixed investment advanced, and the housing sectorhas strengthened further, but fiscal policy has become somewhat morerestrictive,” adding that inflation has been running somewhat below theCommittees longer-run objective. The FOMC will continue purchasingadditional agency mortgage-backed securities at a pace of $40 bln permonth and longer-term Treasury securities at a pace of $45 bln per month;along with maintaining its existing policies of reinvesting principalpayments from its holdings of agency debt and agency mortgage-backedsecurities in agency mortgage-backed securities and of rolling overmaturing Treasury securities at auction. The next FOMC meeting is onApril 30-May 1, 2013. Germany auctioned 30-year bunds at an average yield of 2.16%, thelowest on record. Germany’s Ifo institute said its business climate index dropped to 104.4this month from 106.7 in March, worse than market expectations of adecline to 106.2. The Bank of England expanded its Funding for Lending Scheme onWednesday, extending its availability to the start of 2015, increasing theincentives available to banks to lend to small companies and includingsome non-bank providers of credit in the scheme for the first time. Australia recorded its slowest core consumer price growth in 14 years inQ1/13, raising market expectations that the Reserve Bank of Australia willcut its benchmark interest rate from 3.0% to a record low next month. Thecentral bank’s preferred measure of inflation eased to 0.3% q/q, the lowestreading since Q3/1998, below market expectations of 0.5% q/q. On anannual basis, the trimmed mean gauge of inflation advanced 2.2%,compared with economists’ forecasts for a 2.4% gain. The RBA has atarget of 2.0% to 3.0%. New Zealand’s central bank maintained its benchmark interest rate at arecord low of 2.5%, but like the Bank of Canada, is concerned about risinghome prices fueled by low borrowing costs. The Reserve Bank of NewZealand said borrowing costs are expected to be held through the end ofthe year. Global equity markets were mostly higher Wednesday, with the exceptionof the U.S., which posted a flat session on mixed corporate earningannouncements. . . Companies today with negative developments include:o Procter & Gamble (forecast much weaker than expected Q4/14core earnings of $0.69 to $0.77 per share, compared to consensusof $0.81, due to competitive pressures, increased marketing costsand currency fluctuations. Q3/13 core EPS of $0.99 beat consensus-1.02.03.04.05.06.0May-03 May-06 May-09 May-122 Year5 Year10 YearInternational Yield Curves-1.00.01.02.03.04.00 10 20CanadaUSGermanyU.K.JapanYieldTermDaily Market SummaryMarket Last Change % Chng12,270 179 1.48Dow Jones 14,676 -43 -0.291,579 0 0.003,270 0 0.01295 2 0.6813,843 314 2.3222,183 376 1.73868 11 1.252,496 46 1.88S&P/TSXS&P 500NASDAQStoxx 600NikkeiHang SengMSCI Asia Apex 50CSI 300 IndexS&P 500 Index Intraday Performance1,5721,5741,5761,5781,5801,5821,5849:30 AM 11:30 AM 1:30 PM 3:30 PM
Market Buzz April 24, 2013Page 3by 3 cents on effective cost control. Sales rose 2% y/y to $20.598bln, below consensus of $20.73 bln. Organic sales growth of 3%was at the low end of management’s 3% to 4% forecast range);o Qualcomm (issued disappointing guidance, with the $4.48 mid-point of its FY 2013 EPS range of $4.40 to $4.55 below consensusof $4.54. Qualcomm lifted its full-year revenue forecast to $24.0 blnto $25 bln from its prior forecast of between $23.4 bln and $24.4 bln.In addition, the $1.01 mid-point of management’s Q3/13 EPSforecast range of $0.97 to $1.05 is also behind consensus of $1.04.For Q2/13, adjusted EPS of $1.17 matched analysts’ estimates,while revenue of $6.12 bln (+24%) exceeded expectations of $6.08bln);o EMC Corp. (Q1/13 adjusted EPS of $0.39 was a penny short ofconsensus on slightly weaker than expected revenue of $5.39 bln(+6% y/y), compared to market expectations of $5.42 bln.Customers remained cautious about information technologyspending but EMC reiterated its full-year forecast. The companyspublicly traded cloud computing unit, VMware Inc., forecast Q2/13revenue below analysts estimates on Tuesday);o Sprint Nextel (continued to suffer massive customer defectionsamid the ongoing shutdown of its older Nextel network. Sprint lost560,000 contract customers in the quarter, far worse thanconsensus for a loss of 459,000. Sprint’s loss narrowed to $643mln, or 21 cents a share, better than consensus for a loss of $0.33.However, improved profitability was driven by fewer customeradditions, which require upfront costs for subsidizing purchases ofnew devices. Sprint’s future remains uncertain after JapansSoftBank agreed to buy a 70% stake in Sprint for about $20 bln lastfall, and Dish Network recently made a competing $25.5 blnproposal. Sprint itself is in the process of buying the portion ofmobile-broadband company Clearwire that it doesnt already own);o Motorola Solutions (provided weak Q2/13 guidance, with adjustedEPS of $0.66 to $0.71 materially below consensus of $0.85. Salesin the current quarter are forecast to be unchanged to down 2% y/y,also weaker than analysts’ expectations for a 5% increase to $2.25bln. CEO Greg Brown said corporate customers are still putting offorders due to the economic uncertainty, forcing the company to bemore dependent on its government customers at the federal, stateand municipal level, which together account for about 70% ofrevenue. Q1/13 adjusted EPS of $0.66 on revenue of $1.97 bln(+1% y/y) were short against consensus of $0.67 and $2.05 bln,respectively);o Eli Lilly (Q1/13 adjusted EPS of $1.14 beat consensus by 9 centsdue mainly to a lower costs and a lower tax rate. Revenue wasunchanged from a year earlier at $5.6 bln (in line with consensus of$5.67 bln) as higher prices helped offset a drop in prescriptions forthe schizophrenia drug Zyprexa. Gross margin rose to 79.3% from78.6%. The company is cutting hundreds of jobs as it prepares forthe patent loss of its top- seller Cymbalta at the end of the year andbacked its full-year guidance);
Market Buzz April 24, 2013Page 4o Newmont Mining (cut its quarterly dividend to $0.35 per share from$0.425 per share);o Barclays Plc (Q1/13 adjusted pre-tax profit fell 25% y/y to £1.79bln, trailing consensus of £2.1 bln due to weakness in segmentsoutside its investment bank. Investment banking accounted for 74%of Barclays pretax profit, or £1.32 bln (+11% y/y) of the £1.79 blntotal. The European retail and business bank posted a £462 mlnloss in the quarter as restructuring efforts continued. Barclays isexpected to spend nearly £3 bln on "Project Transform" over thenext three years, including another £500 mln this year; cutting 3,700jobs, pruning the investment bank and reforming the banks cultureafter a series of scandals);o Daimler AG (cut its 2013 profit forecast after weaker-than-expectedQ1/13 results. Management now expects adjusted EBIT will fall thisyear, rather than match 2012’s €8.1 bln, as previously forecast.Q1/13 EBIT of €917 mln missed consensus of €1.06 bln, as salesfell 3% to €26.1 bln. Profit at the Mercedes cars division tumbled63% to €460 mln as revenue slipped 6% to €14.1 bln, highlightedweak sales in China);o LM Ericsson AB (Q1/13 operating profit of 2.11 bln Swedishcrowns was well short of consensus of SEK3.35 bln due to weakerthan expected revenue and margins. Revenue of SEK52.0 bln wasbelow expectations of SEK53.0 bln, while gross margin of 32.0%was lower than consensus at 32.8%);o LG Electronics (Q1/13 net income fell 91% y/y to 22.1 billionKorean won ($20 mln), well short of the 208.7 bln won averageanalyst estimate, due primarily to stagnant television demand. LG isthe world’s second-largest television maker, but has lagged behindSamsung in the high-end TV race, while being pressured in thelower-end category by low-cost producers such as Vizio);o Other companies with negative developments, quarterly results, orguidance that failed to meet analysts’ expectations include Aflac,Allegheny Technologies, Assurant, Carlisle Cos., CitrixSystems, Equinix, F5 Networks, HomeAway, Intersil, Intuit,NASDAQ OMX Group, OSI Systems, Polycom, ProLogis,Rockwell Automation, Silicon Laboratories, Southern Co.,Stericycle, Supervalu, Teradyne, TriQuint Semiconductor, T.Rowe Price, USG Corp., Varian Medical Systems, Vocus, WasteManagement, Whirlpool, Xilinx, Zynga, Commerzbank AG,Finmeccanica SpA, Heineken NV, Renault SA and Canon. Companies today with positive developments include:o Boeing (Q1/13 core EPS of $1.73 handily beat consensus by 24cents as cost-cutting and higher profit margins more than offset asmall decline in sales (a research-and-development tax credit alsoadded about 19 cents to earnings per share). Revenue slipped 2.5%y/y to $18.9 bln, hit by halted Dreamliner deliveries, but was in linewith consensus at $18.8 bln. Importantly, the Dreamliner’s problemsare having little impact on financial results as management stood bytheir sales, earnings and cash forecasts for the full year, adding thatit expects to deliver all of the jets it had planned, includingDreamliners. Boeing delivered only one Dreamliner in Q1/13, down
Market Buzz April 24, 2013Page 5from 23 in the previous quarter, after the Federal AviationAdministration grounded the plane on January 16th. The FAAapproved Boeing’s changes to the 787’s battery system to improvesafety on April 19th, paving the way for flights and deliveries toresume);o Ford Motor (Q1/13 adjusted EPS of $0.41 topped consensus by 4cents due to strong performance in its North American unit, whichposted its best quarter in more than a decade on the strength ofnew models. Revenues grew 10% y/y to $35.8 bln, well in front ofthe $33.74 bln average analyst estimate. Profit in the quarter wasweighed down by wider losses in Europe, a deficit in South Americatriggered by Venezuela’s currency devaluation earlier this year, andhigher capital expenditures. The company forecast Q2/13 EPS of$0.86 to $0.88, with analyst consensus at $0.86. Looking furtherahead, Ford continues to expect full year 2013 pre-tax profit to beabout equal to 2012);o Microsoft (announced that it will unveil its much anticipated next-generation Xbox on May 21st);o General Dynamics (Q1/13 EPS of $1.62 (+3.2% y/y) well exceededconsensus by 12 cents. As a result, operating margins edged up to11.4% from 11.3% a year earlier. Revenue fell 2.4% to $7.4 bln,slightly short of consensus of $7.55 bln. CEO Phebe Novakovic saidthe company remains focused on operations, cost improvement andcash generation);o Buckeye Technologies (agreed to be acquired by Georgia-PacificLLC for about $1.5 bln, with the $37.50 per share offer representinga 25% premium over Tuesday’s closing price);o Regeneron Pharmaceuticals (will replace MetroPCSCommunications in the Standard & Poor’s 500 Index after the closeof trading on April 30);o WellPoint (Q1/13 adjusted EPS of $2.94 well surpassed consensusof $2.38 due to lower-than-expected medical costs and a lower taxrate. Total operating revenue jumped 16% y/y to $17.55 bln, buttrailed against consensus of $18.0 bln. The companys benefit-expense ratio, which reflects the portion of insurance premiumsused for patient care, increased slightly to 83.7% from 83.3% a yearearlier because of the inclusion of recently purchased Medicaidinsurer Amerigroup – but was still lower than what analysts hadexpected. WellPoint raised its full-year 2013 operating earningsguidance to "at least $7.80 per share," excluding net investmentlosses. The company previously estimated EPS of at least $7.60,and analysts recently forecast $7.78);o GlaxoSmithKline Plc (Q1/13 adjusted earnings fell 6% y/y to £1.93bln ($2.95 billion), or 26.9 pence a share, exceeding consensus of25.2 pence. The decline in earnings was the result of lost revenuefrom several products it divested. Sales fell 3% to £6.47 bln, buttopped the £6.42 bln average analyst estimate. The company iswaiting on regulatory decisions on six drugs as it seeks to boostsales 1% this year and earnings per share by 3% to 4%);o Novartis AG (Q1/13 adjusted earnings rose 7% y/y to $3.25 bln,surpassing consensus of $3.12 bln, helped by Ranbaxy
Market Buzz April 24, 2013Page 6Laboratories’ failure to market a generic version of the Diovanhypertension drug, the company’s second- best-selling medicine.Novartis said competition from generic medicines will cut sales byas much as $3.5 bln in 2013, but reiterated its forecast for a mid-single- digit percentage decline in profit this year, and repeated thatsales will be in line with those of 2012, excluding currency swings);o Credit Suisse Group AG (Q1/13 net income of 1.3 bln Swiss francsbettered the analyst consensus estimate of 1.27 bln francs on lowercosts and improved earnings at the investment bank. Credit Suissesaid it has achieved 2.5 bln francs of cost savings and is on courseto meet a goal of 4.4 bln francs in cuts by the end of 2015. Theprivate banking and wealth management division saw earnings fall7.4% to 881 mln francs, but pre-tax profit at the investment bankrose 43% y/y to 1.3 bln francs despite flat revenue growth. Revenuefrom fixed-income sales and trading rose 3.1% to 1.99 bln francs,while equity sales and trading revenue fell 4.8% to 1.3 bln francs.Revenue from underwriting and advisory rose 3.4% to 763 mlnfrancs, as increases in debt and equity underwriting were partiallyoffset by lower fees from mergers and acquisitions);o HSBC Holdings Plc (announced that it plans to cut about 1,150additional jobs in Britain as the bank adjusts to new regulations forwealth advisers. The job cuts are separate from a cost-cutting planthat HSBC announced in 2011, when it said it would reduce about30,000 positions over the next three years);o Volkswagen AG (Q1/13 EBIT fell 26% y/y to €2.34 bln, matchingconsensus. Revenue declined 1.6% to €46.6 bln. More important,management maintained their FY 2013 guidance for operating profitto be on the same level as 2012. Volkswagen has been offsetting aEuropean sales decline, where demand is at a 20-year low, withgains in deliveries in China and the U.S.);o Other companies with positive developments, quarterly results, orguidance include Akamai Technologies, Ashland, AveryDennison, Boyd Gaming, Brandywine Realty Trust, Cabot Oil &Gas, Cliffs Natural Resources, Corning, Crown CastleInternational, Dr Pepper Snapple Group, Duke Realty, FirstSolar, Flowserve, Hess, Kaiser Aluminum, Lam Research,Lorillard, LSI Corp., Lumber Liquidators Holdings, MeritageHomes, Newfield Exploration, Northrop Grumman, OReillyAutomotive, Owens Corning, Praxair, Stryker, TE Connectivity,Thermo Fisher Scientific, Timken, Tractor Supply, WesternDigital, Whiting Petroleum, Wyndham Worldwide, AVGTechnologies NV, Domino’s Pizza Group Plc, PSA PeugeotCitroen, Standard Life Plc, Storebrand ASA, Jet Airways (India)and Nintendo. Analyst upgrades include: Norfolk Southern* (TD – * denotes price targetchange); Nestle (RBC); Halliburton (Societe Generale); Baker Hughes(Credit Suisse); CIT Group (Oppenheimer); Coach (Credit Agricole); eBay(Wells Fargo); A.O. Smith (Janney Montgomery); ITT EducationalServices (Deutsche Bank); NASDAQ-OMX, Deutsche Post (JPMorgan);Packaging Co. of America, National Fuel Gas (BMO); Ryder System(Wells Fargo); Red Robin Gourmet Burgers (KeyBanc); VeecoInstruments (Canaccord Genuity); AXA (Citigroup) and Henkel (Kepler).
Market Buzz April 24, 2013Page 7 Analyst downgrades include: Apple, Nicor (BMO); Amgen (Piper Jaffray);AT&T (Citigroup, Morgan Stanley, BMO, UBS, FBR Capital); BuckeyeTechnologies (Sidoti); Discover Financial Services (Jefferies); DeVry,Total System Services (Deutsche Bank); Edwards Lifesciences (RBC,Lazard); Freeport-McMoRan Copper & Gold (Argus); Travelers (DrexelHamilton); Associated British Foods (Societe Generale); British SkyBroadcasting (Investec); Luxottica Group (Kepler); LOreal (RBC) andSaipem (Societe Generale). From a technical perspective, the U.S. Treasury market (long maturities)appears to have a neutral bias over the shorter term (1-2 weeks). Thelonger-term trends remain positive/neutral. The intermediate-term tradingrange for the 10-year note appears to be 1.65% to 2.20%. Ourintermediate-term trading target for the long Treasury is 2.80% to 3.35%.Canadian Markets Canadian government bond prices were confined to tight ranges andclosed little changed Wednesday in an uneventful session. The Bank ofCanada auctioned C$3.3 bln in a re-opening of the Government of Canada1.5% August 1, 2015 bond at an average yield of 0.990% (101.141) forsettlement April 26. Total outstanding for the issue is now at C$12.0 bln. Canadian International Oil Corp. (unrated) priced a new privateplacement of C$75 mln 11.0% May 2, 2016 senior 2ndlien notes (couponis 8% cash and 3% payment in kind) at 98.50. Each C$1,000 of principalhas 80 warrants attached, with the strike price at the lesser of C$3.50 andthe liquidity event price. The issue features a change of control put at110% and a Canada Call at +50 bps. GMP and TD were the jointleads/books, plus BMO, Raymond James, CIBC, Canaccord, Peters,FirstEnergy & Haywood Securities. Air Canada Inc. priced a new private placement (144a w/o Reg RightsRegS) issue of US$715 mln (approximate) in 2013-1 EETC Pass-ThroughCertificates, collateralized by 5 new Boeing 777-300ER aircraft to bedelivered between June and February 2014, consisting of:o Tranche A: US$424.389 mln 4.25% expected maturity of May 15,2025 (legal final maturity at November 15, 2026) at 100.00(4.125%). Average life of 9.0 years and the initial maximum loan-to-value is 48.9%;o Tranche B: U$181,881 mln, 5.375% expected maturity of May 15,2021 (legal final maturity at November 15, 2022) at (5.375%).Average life of 6.0 years and the initial maximum loan-to-value is69.5%;o Tranche C: US$108.264 mln 6.625% expected maturity of May 15,2018 (legal final May 15, 2018) at 100.00 (6.625%). Average life of5.0 years and the initial maximum loan-to-value is 82.3%;o Morgan Stanley and Credit Suisse were the active bookrunners,with Citigroup, and Deutsche Bank passive bookrunners. Canadian retail mutual fund net inflows slowed in March, coming in atC$5.9 bln, lower than the C$7.6 bln recorded in February, but higher thanthe C$3.5 bln a year ago. Equity funds saw net inflows of C$0.3 bln whilebalanced and bond funds had net inflows of C$4.9 bln and C$0.9 bln,Canadian Yield Curve0.01.02.03.04.00 10 20 30TermYieldToday1 Month Ago1 Year AgoBenchmark Canada Yield History-1.02.03.04.05.06.0May-03 May-06 May-09 May-122 Year5 Year10 YearS&P/TSX Sector PerformanceSector Last Change % ChangeMaterials 2277.33 106.58 4.91%Technology 123.98 2.53 2.08%Energy 2657.13 47.15 1.81%S&P/TSX 12270.43 179.49 1.48%Financials 1785.67 11.00 0.62%Utilities 1927.41 9.86 0.51%Discretionary 1185.46 4.49 0.38%Industrials 1631.10 5.99 0.37%Healthcare 1136.78 3.34 0.29%Staples 2268.67 1.60 0.07%Telecom 1171.06 -5.75 -0.49%TSX Performance HighlightsLast Change % ChangeBarrick Gold Corp 19.38 1.37 7.61%Yamana Gold Inc 12.66 0.81 6.84%Goldcorp Inc 30.25 1.81 6.36%First Quantum Minerals Ltd 17.35 0.88 5.34%Teck Resources Ltd 26.80 1.20 4.69%Suncor Energy Inc 29.60 0.74 2.56%Canadian Natural Resources 30.24 0.72 2.44%Potash Corp of Saskatchewa 40.64 0.80 2.01%Toronto-Dominion Bank/The 81.50 0.62 0.77%Royal Bank of Canada 60.27 0.40 0.67%Last Change % ChangeSherritt International Corp 4.32 -0.13 -2.92%Encana Corp 18.72 -0.24 -1.27%Canadian Pacific Railway Ltd 124.73 -1.50 -1.19%Loblaw Cos Ltd 41.11 -0.40 -0.96%Rogers Communications Inc 49.82 -0.46 -0.91%Alimentation Couche Tard Inc 58.79 -0.36 -0.61%BCE Inc 46.87 -0.28 -0.59%Inter Pipeline Fund 24.04 -0.11 -0.46%TELUS Corp 35.99 -0.16 -0.44%Valeant Pharmaceuticals Inte 76.73 -0.22 -0.29%LeadersLaggards
Market Buzz April 24, 2013Page 8respectively. Stand-alone funds and fund-of-funds both saw net inflows of$2.2 bln and $3.8 bln, respectively. Equity mutual funds as a percentage oftotal assets under administration held in at 32%. On April 17, 2013, the Bank of Canada (BoC) kept its overnight targetrate unchanged at 1.00% for a 21st consecutive meeting following a stringof three consecutive rate hikes in early 2010. The Bank rate wascorrespondingly kept at 1.25% and the deposit rate at 0.75%. The BoCstated “global economic growth has evolved broadly as anticipated in theBank’s January Monetary Policy Report (MPR). In the United States, theeconomic expansion is continuing at a modest pace, with graduallystrengthening private demand partly offset by accelerated fiscalconsolidation. Significant policy stimulus has been introduced in Japan.Europe, in contrast, remains in recession, with economic activityconstrained by fiscal austerity, low confidence and tight credit conditions.After picking up to very strong rates in the second half of 2012, growth inChina has eased. The Bank expects global economic activity to growmodestly in 2013 before strengthening over the following two years.” TheBoC expects growth in Canada to regain some momentum through 2013as net exports pick up and business investment returns to more solidgrowth. Annual average growth is now projected to be 1.5% in 2013. Theeconomy is then projected to grow by 2.8% in 2014 and 2.7% in 2015,reaching full capacity in mid-2015 – later than anticipated in the JanuaryMPR. Total CPI and core inflation have remained low in recent months,broadly in line with expectations in the January MPR. Core and total CPIinflation are expected to remain low in the near term before risinggradually to reach 2% to by mid-2015. The BoC’s forward-lookingstatement remained dovish, stating that “with continued slack in theCanadian economy, the muted outlook for inflation, and the constructiveevolution of imbalances in the household sector, the considerablemonetary policy stimulus currently in place will likely remain appropriate fora period of time, after which some modest withdrawal will likely berequired, consistent with achieving the 2 per cent inflation target.” The next fixed announcement date is May 29, 2013 (announcement timeis 10:00 am ET). TD Economics is of the opinion that the BoC will begin tohike rates in Q4 2014, forecasting the overnight rate to remain at 1.00% in2013 and increasing to 1.50% at the end of 2014. The S&P/TSX rose by 179.49 points (+1.48%) to 12,270.43, led by theBasic Materials (+4.96%) and Oil & Gas (+1.80%) sectors as commodityprices continued to recover. Companies with positive developments include:o Canadian Pacific Railway (Q1/13 net income rose 53% y/y toC$217 mln (a record for Q1), with EPS of C$1.24 beatingconsensus by 3 cents on efficiency improvements and a tax benefit.Adjusted EPS of C$1.20 (+46%) was a penny below consensus.Revenue increased 9% y/y to C$1.5 bln, in line with the C$1.49 blnaverage analyst estimate. The operating ratio improved 430 bps y/yand 200 bps q/q to 75.8%, a new first quarter record. CP is targetinga mid-60% operating ratio by 2016. CEO Harrison said that he is"now even more confident that we are on pace toward the best year-end financial and operating performance in CPs history");o Barrick Gold (Q1/13 adjusted EPS of US$0.92 topped consensusby 2 cents due to better cost control. Revenue fell 6% y/y toUS$3.44 bln, below consensus of US$3.55 bln, due to lowerrealized prices and with gold production dropping about 4% to 1.8
Market Buzz April 24, 2013Page 9mln ounces. All-in sustaining costs in the first quarter were $919 anounce, while total cash costs rose slightly to $561 an ounce, up from$540 an ounce. Barrick announced that it is scaling back capitalspending and warned it is continuing to evaluate all alternatives forits flagship Pascua-Lama gold-and-silver mine on the border ofChile and Argentina, including the possibility of suspending theproject. Barrick has so far spent US$4.8 bln into Pascua-Lama,which is expected to produce some 800,000 to 850,000 ounces ayear in its first five years of full production);o Cenovus Energy (Q1/13 cash flow per share of C$1.28 (+39% q/q)and operating EPS of C$0.52 beat consensus of C$1.14 andC$0.46, respectively, due largely to higher refining margins at thedownstream segment. The wider heavy oil differentials realized inQ1/13 had a negative impact on upstream realized pricing buttranslated into lower feedstock prices and higher margins for therefining business. Upstream production averaged 271,100 barrels ofoil equivalent per day, in line with consensus of 271,869 boe/d. Thecompany’s 2013 capital budget of C$3.2 bln to C$3.6 bln andproduction guidance of 274,000 boe/d remained unchanged,although the company is deferring some capital at Pelican Lake dueto lower response time from the existing polymer program). Companies with negative developments include:o MEG Energy (Q1/13 cash flow per share of C$0.03 mln missedconsensus by 2 cents due to lower than expected price realizationscaused by a widening heavy differential and a significant increase indiluent costs. Bitumen production of 32,500 barrels per day wasslightly ahead of consensus of 32,500 b/d);o Metro (Q2/13 adjusted EPS of C$1.02 topped consensus by apenny as a 40 basis point improvement in gross margin offset salesweakness. Management warned of a "challenging" competitiveenvironment. Sales fell 2.6% to C$2.51 bln, below consensus ofC$2.6 bln, primarily due to the inclusion of the week precedingChristmas in the first quarter, compared with the second quarter ayear earlier; the closure of underperforming stores in Ontario duringthe quarter; and a temporary distribution glitch in the pharmacybusiness. Actual same-store sales (SSS) declined about 1%, withmanagement reporting that SSS were flat excluding the negativeimpact of the Christmas timing shift. Metro announced that it isusing some proceeds from its sale of half its investment inAlimentation Couche-Tard stock to buy back up to one million of itsown shares);o Open Text (Q3/13 adjusted EPS of US$1.26 trailed behindconsensus by 12 cents due to weaker margins as operatingexpenses were higher than expected. Revenue of US$337.7 mlnalso missed consensus of US$344.5 mln due to weakness in theservices business. Adjusted operating margin of 26.8% was weakerthan consensus of 27.3%. Open Text initiated a quarterly dividendof $0.30 per share, which equates to a 2.1% yield);o Sherritt International (Q1/13 adjusted EPS of C$0.03 missedconsensus by 3 cents due to lower than expected metals sales andlower realized pricing. Nickel sales of 8.6 mln pounds were down
Market Buzz April 24, 2013Page 10sequentially from 9.7 mln lbs in Q4/12. Management maintainedtheir 2013 production guidance);o Toromont Industries (Q1/13 reported EPS of C$0.23 missedconsensus by 2 cents on lower-than-expected margins, which camein at 8.1% EBIT versus consensus of 9.5%. Revenue increased11% y/y to C$313.1 mln, with growth in both the Equipment Groupand CIMCO, above the C$304 mln average analyst estimate);o TeraGo (concluded a strategic review resulting in no sale of thecompany). Analyst upgrades include Canadian Imperial Bank of Commerce(National Bank); Allied Nevada Gold (Scotia); Celestica (SalmanPartners). Analyst downgrades include Major Drilling Group International*, MEGEnergy*, Teck Resources*, TeraGo*, TransAlta* (TD – * denotes pricetarget change); Athabasca Oil (Canaccord Genuity); CRH Medical(Bloom Burton); Golden Star Resources (Scotia). The longer end of Canadian bond market appears to have a neutral biasover the shorter term. Monthly technical indicators continue to show apositive/neutral underlying bond market trend for longer maturities. Theintermediate-term technical targets are suggested at 1.50%-2.05% for the10-year maturity and 2.15%-2.65% for the 30-year.Commodities and FX Markets Commodity prices were mostly higher on Wednesday on speculation thatcentral banks will take more steps to spur global economic growth. . The weekly spot price for uranium fell $0.50/lb to $40.25/lb for UxConsulting (as of April 22). The US$ was stable today against the yen at 99.49 and softer versus theeuro at 1.3017, with the U.S. Dollar Index slipping 0.12% to 82.95. Theshorter-term technical profile for the US$ appears to be neutral/positiveagainst the yen and neutral versus the euro. The suggested shorter-termranges are 1.2700 to 1.3200 for the euro and 90.0 to 105.0 for the yen. The C$ was flat at 0.9750 (1.0256 per US$). The shorter-term technicalprofile appears neutral/negative. Our shorter-term trading range issuggested at 0.9615 to 1.000 (1.0400 to 1.000 per US$).Key EventsDate Event Consensus LastThur. Apr. 25 U.S. Weekly Initial Jobless Claims 351,000 352,000Fri. Apr. 26 U.S. GDP (Q1/13) annualized 3.0% 0.4%Michigan Consumer Sentiment (Apr.) F 73.5 73.2S&P/TSX Intraday Performance12,00012,05012,10012,15012,20012,25012,3009:30 AM 11:30 AM 1:30 PM 3:30 PMBenchmark Spreads:Provincials 5yr 10yr LongOntario 48 95 107Quebec 55 106 118British Columbia 54 87 102Corporates Bid Ask ChgCitigroup Fin. Cda.5.50% - 2013TD Bank Tier 2A4.779% - 2016Bank of Nova Scotia3.35% - 2014 DNEncana5.80% - 2018Wells Fargo Cda.4.38% - 2015General Electric5.10% - 2016TransCanada5.05% – 2013Hydro One3.13% - 2014RBC4.97% 2014Bell Aliant6.29% - 2015Rogers Comm.5.80% -2016Bell Canada5.00% - 2017John Deere Credit1.85% - 2014Manulife Financial5.161% 2015TELUS4.95% 201755 59103 9346 39145 13565 5577 6736 3442 2735 28102 9291 8394 8692 8444 3487 77CommoditiesContract Last ChangeOil (US$/bbl) JUN 13 91.65 2.77%Nat. Gas (US$/MMBtu) MAY 13 4.18 -1.44%Gold (US$/oz) JUN 13 1429.70 1.48%Silver (US$/oz) JUL 13 23.145 1.22%Copper (US$/lbs) JUL 13 3.175 2.27%- - - -CommodityF/X RatesCross Last Prev. Cls Change0.9749 0.9749 0.00001.0258 1.0257 0.00011.3015 1.2996 0.001999.56 99.48 0.0800CAD/USUS/€US/CAD¥/USTD Waterhouse - Portfolio Advice & Investment ResearchSheldon Dong, CFA,VP Fixed income Strategy,firstname.lastname@example.org
Market Buzz April 24, 2013Page 11The slowdown in economic activity is right on schedule – for the 4thyearin a row: Similar to the last three years, the U.S. economy has followed astrong start to the year with a slowdown, particularly in manufacturing. What istroubling this year is that there is corresponding slowdown in other majoreconomies that were thought to be in good shape, namely Germany andChina. No wonder global interest rates are falling again.Chart and data sourced from Sober Lookhttp://soberlook.com/2013/04/the-slowdown-in-economic-activity-is.html“Practical men ... are usually the slaves of some defunct economist.” JohnMaynard Keynes
Market Buzz April 24, 2013Page 12Appendix A - Important InformationFull disclosures for all companies covered by TD Securities can be viewed athttps://www.tdsresearch.com/equities/coverage.disclosure.actionResearch Ratings:Action List BUY: The stock’s total return is expected to exceed a minimum of 15%, on arisk-adjusted basis, over the next 12 months and it is a top pick in the Analyst’s sector.BUY: The stock’s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months.SPECULATIVE BUY: The stock’s total return is expected to exceed 30% over the next12 months; however, there is material event risk associated with the investment thatcould result in significant loss.HOLD: The stock’s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months.TENDER: Investors are advised to tender their shares to a specific offer for thecompany’s securities.REDUCE: The stock’s total return is expected to be negative over the next 12 months.Research Dissemination PolicyTD Waterhouse makes its research products available in electronic format. TDWaterhouse posts its research products to its proprietary websites for all eligible clientsto access by password and distributes the information to its sales personnel who maythen distribute it to their retail clients under the appropriate circumstances either byemail, fax or regular mail. No recipient may pass on to any other person, or reproduceby any means, the information contained in this report without the prior written consentof TD Waterhouse.Analyst CertificationThe TD Waterhouse Portfolio Advice & Investment Research analyst(s) responsible forthis report hereby certify that (i) the recommendations and technical research opinionsexpressed in the research report accurately reflect the personal views of the analyst(s)about any and all of the securities or issuers discussed herein and (ii) no part of theresearch analysts compensation was, is, or will be, directly or indirectly, related to theprovision of specific recommendations or views contained in the research report.Conflicts of InterestThe TD Waterhouse Portfolio Advice & Investment Research analyst(s) responsible forthis report may own securities of the issuer(s) discussed in this report. As with mostother TD Waterhouse employees, the analyst(s) who prepared this report arecompensated based upon (among other factors) the overall profitability of TDWaterhouse and its affiliates, which includes the overall profitability of investment^ Percentage of subject companies under each ratingcategory—BUY (covering Action List BUY, BUY andSpec. BUY ratings), HOLD and REDUCE (coveringTENDER and REDUCE ratings).* Percentage of subject companies within each of thethree categories (BUY, HOLD and REDUCE) for whichTD Securities Inc. has provided investment bankingservices within the last 12 months.Current as of April 2, 2013Investment Banking Services Provided*46%53%1%0%10%20%30%40%50%60%70%80%BUY HOLD REDUCEDistribution of Research Ratings^HOLD44%REDUCE4%BUY52%
Market Buzz April 24, 2013Page 13banking services, however TD Waterhouse does not compensate analysts based onspecific investment banking transactions.TD Waterhouse DisclaimerThe statements and statistics contained herein are based on material believed to bereliable, but are not guaranteed to be accurate or complete. This report is forinformation purposes only and is not an offer or solicitation with respect to the purchaseor sale of any investment fund, security or other product. Particular investments ortrading strategies should be evaluated relative to each individual’s objectives. Graphsand charts are used for illustrative purposes only and do not reflect future values orfuture performance. This document does not provide individual, financial, legal,investment or tax advice. Please consult your own legal, investment, and tax advisor.All opinions and other information included in this document are subject to changewithout notice. The Toronto-Dominion Bank and its affiliates and related entities are notliable for any errors or omissions in the information or for any loss or damage suffered.TD Waterhouse Canada Inc. and/or its affiliated persons or companies may hold aposition in the securities mentioned, including options, futures and other derivativeinstruments thereon, and may, as principal or agent, buy or sell such securities.Affiliated persons or companies may also make a market in and participate in anunderwriting of such securities.TD Waterhouse represents the products and services offered by TD WaterhouseCanada Inc. (Member – Canadian Investor Protection Fund), TD Waterhouse PrivateInvestment Counsel Inc., TD Waterhouse Private Banking (offered by The Toronto-Dominion Bank) and TD Waterhouse Private Trust (offered by The Canada TrustCompany).Technical Research DisclaimerThe opinions expressed herein reflect a technical perspective and may differ fromfundamental research on these issuers. Fundamental research can be obtainedthrough your TD Waterhouse Investment Advisor or on the Markets and Research sitewithin WebBroker. The technical research opinions contained in this report are basedon historical technical data and expectations of the most likely direction of a market orsecurity. No guarantee of that outcome is ever implied.TD Securities Disclaimer“TD Securities” is the trade name which TD Securities Inc. and TD Securities (USA) Inc.jointly use to market their institutional equity services.TD Securities is a trade-mark of The Toronto-Dominion Bank representing TDSecurities Inc., TD Securities (USA) LLC, TD Securities Limited and certain corporateand investment banking activities of The Toronto-Dominion Bank.Trade-mark DisclosureBloomberg and Bloomberg.com are trademarks and service marks of BloombergFinance L.P., a Delaware limited partnership, or its subsidiaries. All rights reserved.All trademarks are the property of their respective owners.®/ The TD logo and other trade-marks are the property of The Toronto-Dominion Bankor a wholly-owned subsidiary, in Canada and/or in other countries.